Tips for Overcoming Trading Fomo

The fear of missing out (FOMO) can cause traders to make irrational trading decisions. Becoming a successful trader is all about learning how to time the market. Prices and values, whether in the stock market the forex market, or anywhere else, can often change very rapidly. If you hope to implement a time-sensitive trading strategy, you will need to learn how to anticipate these before they actually occur.

Entering a position without evidence of a probable price increase can often cause traders to end up losing money. In these circumstances, FOMO will cause traders to buy high and, inevitably, sell low. At the same time, waiting until after the price movement has actually unfolded will cause traders to miss out on opportunities to increase their wealth. As an active price trader, your job is to find the “sweet spot” between reckless early entries and delayed late entries.

Of course, in a market-driven by uncertainty, there will be plenty of profitable trading opportunities you end up missing. Depending on the size of these price swings, it can be very easy to become discouraged. The fear of missing out (FOMO) and other trading emotions can cause traders to make impulsive or haphazard decisions.

Learning to react appropriately when facing a missed opportunity can help significantly improve your long-term performance as a price action trader. In this article, we will discuss the most important things for traders to keep in mind when battling FOMO and facing these common—albeit frustrating—situations.

How Do I Know if I’ve Missed an Entry?

If a stock, for example, were to experience a dramatic price swing and increase in value from $100 per share to $120 per share, there’ll be countless traders around the world thinking, “I wish I had invested when the price was at $100.” These sorts of feelings are even more common in the more speculative markets, such as cryptocurrency, where honest price evaluations are more difficult.

As a trader, you can’t go back and change the past. But you can react to the president. Assuming this price increase has already unfolded, the next thing you will need to determine whether the price will experience a trend reversal or whether the price will continue its upswing, rising to $130 per share or even higher. 

In some cases, passing on the security is wise and in other cases, it will be smart to jump in and take advantage of this rally. Using basic price action trading strategies, such as the ones we’ve outlined in this very blog, can help you determine the current trend’s most likely paths forward. Geometric trading patterns, pitchfork patterns, the MACD, and other metrics can all help you trade with greater confidence.

If you are reading this hoping that we will be able to tell you, “Yes, you should open a new position”, you will inevitably be a bit disappointed. Nowhere in the trading world is there a universally useful “line” for where you, as an active trader, should decide to pull or not pull the trigger. But by using your intuition and understanding what various trading indicators are telling you, your approach to the market can much more consistent.

Re-Assessing the Situation

Fear and greed are the two emotions that cause traders to become undisciplined and deviate from their original trading plan. When a security is experiencing an especially strong rally, it can be very tempting to be greedy and assume this rally can continue forever. This greed is especially common with strong growth stocks, such as Tesla (TSLA), that consistently take ten steps forward followed by taking nine steps back.

At the same time, fear of “inevitable” value regressions can cause traders to be overly cautious. Once again, it becomes easy to see how developing an effective trading strategy is a very careful balancing act. To move forward with a clear head, ask yourself the following questions:

  •   Why did the recent price swing likely occur?
  •   How strong is the current price trend?
  •   Is there any evidence that a future price swing is likely to unfold?
  •   Do I understand what drives the value of this market/this particular security?
  •   If I do decide to enter into a new position, what is my future exit plan? How will I know when it is time to pull out?

If you are unable to answer these questions, then it is quite likely that you missed out on the rally and will need to wait until later. That’s okay—as a trader, your goal isn’t to win every trade or to find every winnable trading opportunity, rather, your goal is to simply have enough of a winning ratio that you can build your wealth over time.

Issuing Stop Loss Orders

In the past, we’ve discussed the importance of stop-loss orders and why you should never trade without them. Stop-loss orders help you limit the risk attached to each position, help minimize the effects of trading emotions, and also help you exit your positions with greater precision.

fomo trading

Above: Identifying Mean Reversion can help traders anticipate when price changes are most likely to occur (Trading View).

While stop-loss orders are important, in general, they are even more important when you are entering a position following a recent price swing. As has been consistently revealed through market geometry, strong trends are often carefully paired with strong trend reversals. Rather than entering into a position without protection, consider issuing tight stop-loss orders and minimize your downside.

Sticking with Your Trading Plan

Ultimately, developing a successful trading plan involves looking at the bigger picture and avoiding getting caught up with the particulars. Just because a broader trading plan caused you to miss out on the trade of the year, whatever that might be, does not mean that plan itself needs to be abandoned. Even the best plans will inevitably overlook certain opportunities, but they’ll also find additional opportunities that other traders have missed.

When facing the emotions that come with a volatile market—and these emotions are inevitably the “human” component of the market—take a step back and remind yourself why you chose your strategy to begin with. As a price action trader, you use a combination of trading indicators, speculation, and theory to help determine which assets are most likely to increase in value.

These strategies have consistently demonstrated themselves to be effective over time. If you are winning 70 percent of your positions, you should not obsess over the 30 percent that is losses—in fact, if this is the case, you’re doing great. But even if you are breaking even (or worse), there is still no reason to abandon the use of theory and proven mathematics.

Conclusion – Tips for Overcoming Trading Fomo

Yes, you just missed out on a great opportunity. Of course, it’s not unusual to feel bad. However, it is important to not let the fear of missing out (FOMO) cloud your judgment. There are countless great trading opportunities just around the corner– now it is up to you to go find them.

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